S.B. 487 would amend existing law to authorize Kansas
Venture Capital, Inc. (KVCI) to repay the state's preferred stock
investment of $5 million. This investment, made by the Pooled
Money Investment Board through a commitment of idle funds,
matched $6.6 million of private, equity capital raised primarily by
banks. The bill provides for KVCI to redeem the state's stock in
installments determined by the KVCI Board of Directors. However, certain conditions are set forth in the bill concerning the
repayment schedule. KVCI would be required to make an initial
minimum payment of $1 million by July 31, 1998 and each
successive year by that date until the state's stocks are redeemed
for a total of $5 million. A payment may be deferred in the event
that such payment would result in noncompliance with federal law
or with KVCI having a book value of less than $10 million.
Deferred payments must be payable on the next scheduled
payment date unless such payments would cause KVCI to realize
a book value below the $10 million threshold. If sufficient funds
are available at that time, a partial payment of the deferred
payment would be required if the full payment cannot be made.
Repayments would be made to the Pooled Money Investment
Board which, in turn, would remit all moneys received to the State
Treasury. Any amounts remitted to the State Treasury from KVCI
repayments would be credited to the Public Water Supply Loan
Fund.

The bill would reinstate investment capacity that had been
reserved for investments in KVCI. This capacity had not been
reached and the maximum allowable tax credits had not been
claimed prior to the expiration date of January 1, 1998. In
addition, the bill would commit a portion of investment capacity,
and associated tax credits, originally intended for Sunflower
Technology Ventures. Sunflower Technology Ventures was to
provide funding for early-stage technologically-oriented companies
but never became operational. (The combined investment
capacity from these two sources would be $6,012,345 and
maximum allowable tax credits--25 percent of total investment
capacity--would be $1,503,086.) The bill would impose no time
limit on the use of allowable tax credits which could be claimed
for any new investments made in KVCI after December 31, 1997.

Finally, the bill would eliminate the existing requirement that
KVCI invest all its funds in Kansas companies once the state has
been completely repaid. The bill also would sunset the state's
additional investment commitment of $5 million to KVCI. (This
investment had been predicated upon an unrealized private, equity
capital match of an additional amount of $3.6 million.)

Background

S.B. 487 was requested by the KVCI Board as a means of
privatizing KVCI to respond to: (1) public policy concerns raised
by legislative and administrative officials over public funding of
venture capital companies; and (2) market concerns resulting from
negative publicity surrounding such public investments. According
to testimony from Tom Blackburn, KVCI's Executive Vice-President, KVCI will rely exclusively on future repayments and capital
gains from portfolio company investments to fund ongoing
operations and redeem the state's preferred stock investment
within five years. Mr. Blackburn explained that the intent of the
reinstated and redirected tax credits is to encourage the private
sector to make new investments in KVCI.

Other proponents of the bill included: Dan Hermes, Director
of Governmental Affairs, Governor's Office; Jamie Clover Adams,
Legislative Liaison, Governor's Office; Elmer Ronnebaum, General
Manager, Kansas Rural Water Association; Chuck Stones, Director
of Research, Kansas Bankers Association; and Chris McKenzie,
Executive Director, League of Kansas Municipalities. The Committee received information from several conferees about the Kansas
Public Water Supply Loan Fund. The proceeds from repayment by
KVCI would be credited to this Fund to leverage federal EPA
capitalization grants. These funds, together with revenue bond
proceeds, would be used to provide low-interest revolving loans
to communities and rural water districts to enable them to upgrade
or replace their aging water supply infrastructure.

The Senate Committee chairperson appointed a subcommittee
to consider adding more specificity to KVCI's repayment obligation. Amendments proposed by the subcommittee, with additional
clarifying modifications, were incorporated into the bill.

The Division of the Budget's fiscal note on the introduced
version of the bill indicated the bill would have no fiscal or
operational impact because the transfer of moneys from KVCI to
the State Treasury would constitute a revenue neutral transaction
and the tax credits, made available in this bill, had been funded
previously.

1. *Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.ink.org/public/legislative/fulltext-bill.html.